Legal considerations for the bank of Mum and Dad

With house prices soaring and the cost of living continuing to rise, it’s no surprise that many adult children are relying on their parents for help when setting up a home. Whether it’s gifting a deposit, contributing to renovations, or even helping with the monthly mortgage payments, parental support is playing a major role in helping the next generation take their first steps onto (or up) the property ladder.

While these gestures come from a place of generosity and love, they can also introduce significant legal and financial risks—especially when a child is buying a home with a partner. What happens if the relationship breaks down? Will that gifted deposit still be protected? Without the right legal agreements in place, the answer may be no.

Family financial contributions

It’s increasingly common for parents to be financial contributors in their adult children’s property journeys. According to various surveys, the “Bank of Mum and Dad” is now one of the UK’s largest lenders – ranking 6th in the country for property contributions. But unlike a traditional bank, these contributions often lack formal documentation, making them vulnerable if relationships unravel.

This is where a cohabitation agreement for unmarried couples, a pre-nuptial agreement, for those planning to marry can play a vital role, or post-nuptial agreements to protect gifts given during the marriage. These documents aren’t just about protecting assets should a break-up arise, but they also help preserve family wealth and provide clarity for all parties involved.

Whether parents are providing financial aid throughs means of a private loan, which can be secured against the property, or as a gift—often towards a deposit. It is crucial to document whether the money is to be repaid, and if so, how and when. This distinction can have a significant impact if the relationship ends or if inheritance becomes a factor later down the line.

Protecting family generosity with sensible planning

Nobody wants to think about a relationship ending before it’s even begun, but planning ahead does not mean expecting the worst and instead means being prepared should the worst happen. These agreements can:

• Clarify what happens to gifted or loaned money in the event of a separation.
• Protect assets that parents may want to keep within the family.
• Reduce the potential for emotionally and financially draining disputes later on.

Open conversations, combined with legal advice and formal agreements, are the best way to ensure that a generous act doesn’t turn into a costly mistake. Having these conversations before money changes hands also helps to ensure everyone is on the same page and expectations are managed. Consider these questions before providing/receiving financial support to family:

• Is the money a gift or a loan?
• If a loan, what are the terms? Will there be interest and if so when will repayment begin?
• Will the contribution be protected in the event of a relationship breakdown?
• What happens to this contribution in the context of inheritance?

Being clear on these questions and not assuming where you stand, not only helps set out clear expectations within legal documentation but can also avoid disputes arising between family members down the line.

Commonly asked questions

1. My partner and I are buying our first home, and my parents are gifting us a deposit. Do we really need a legal agreement?

Yes. If the relationship breaks down, a legal agreement can clarify how that gifted money is treated and help avoid disputes over ownership or entitlement.

2. What’s the difference between a cohabitation agreement and a pre-nup?

A cohabitation agreement is for unmarried couples who live together. A pre-nup is for couples who are planning to get married. Both serve to protect individual and family assets and clarify financial arrangements.

3. Can a cohabitation agreement or pre-nup include parental contributions?

Yes. These agreements can include clauses that specifically protect gifted or loaned money from third parties, such as parents. This ensures the money is ring-fenced if the relationship breaks down.

4. My child says it’s “not romantic” to have a pre-nup—how do I respond?

It’s helpful to frame it as a practical, protective measure—just like insurance. It’s not about expecting failure and instead about being responsible and respectful of everyone’s contributions.

5. What’s the difference between a private loan and a gift?

A gift doesn’t need to be repaid, whereas a loan does—often with agreed terms on interest and repayment. Without proper documentation, even loans can be mistaken for gifts in legal proceedings.

6. How does this affect mortgage applications?

Lenders often want to know where deposit money is coming from. Declaring the funds as a loan may affect affordability calculations, while gifts usually require a declaration that the donor has no stake in the property.

7. Are there tax consequences for giving money to a child?

Large gifts may be subject to inheritance tax if the giver dies within seven years. Professional tax advice is recommended before making significant financial gifts.

8. Can the agreement include money that’s already been given?

In some circumstances yes, however it is always better to put agreements in place prior to money changes hands. Retrospective agreements can be more complex and may carry more legal risk.

9. How can we make sure the agreement is legally sound?

It’s essential that each party takes independent legal advice and that the agreement is properly drafted. Our specialist family law team can guide you through this process to ensure everything is done correctly.

If you are a parent planning to help your child financially, or if you are receiving help from your parents—now is the time to think about how to protect those contributions. Get in touch with our family law team to find out how we can help protect you and your family.